RCBJ Retrospective: Removal of Conditions for EB-5 Investors: Practical Guidance in Preparing I-829 Petitions

Securing the initial I-526 petition approvals for a particular new commercial enterprise (“NCE”) represents a significant milestone for a regional center.  For the individual EB-5 investor, though, obtaining approval of the I-829 petition for removal of conditions is far more critical as the ultimate immigration goal — it allows the investor’s family to remain in the United States indefinitely.  On the other hand, denial of the I-829 petition leads to termination of resident status and initiation of removal (deportation) proceedings.  The stakes are high, and significant risk attaches to the removal of conditions process.  Drawing from our law firm’s experience in successfully representing more than 1,000 individual investors across dozens of NCEs in removal of conditions cases, it is imperative that regional centers engage in careful planning about removal of conditions at the outset of raising EB-5 capital.  Due consideration must be given to understanding the requirements for USCIS adjudication of I-829 petitions, monitoring significant events in the business of the job creating entity, tracking job creation progress, organizing supporting documentation, and engaging expert immigration counsel for guidance on how to craft successful I-829 petitions in an environment of constant business change.  This article provides to regional centers an overview of the legal and regulatory requirements for I-829 petitions, as well as practical guidance in tackling challenging issues that may arise during the removal of conditions process.

General Procedures

To remove the conditions from permanent resident status, the EB-5 investor must file Form I-829 with USCIS within the 90-day window immediately preceding the expiration of the two-year conditional period.  A failure to file timely may be excused only “for good cause and extenuating circumstances.”  The divorced spouse of the petitioner and a child who has married since obtaining resident status may be included in, or may file separately, the I-829 petition to remove conditions.  Also, the surviving spouse and children of an investor who has died may file an I-829 petition.

Upon the filing of the I-829 petition, USCIS will issue a receipt notice to the principal and verification notices to the dependents, reflecting that conditional resident status is automatically extended for one year (or until the I-829 petition is adjudicated).  The notices also serve as a travel document, enabling the investor and family members to travel and return to the United States as conditional residents.  Should the I-829 petition remain pending for more than a year, the petitioner and family members can obtain I-551 stamps from a local USCIS district office through an InfoPass appointment.

The investor and dependents need not be in the United States at the time the I-829 petition is filed, but they will be required to attend a biometrics appointment at a USCIS application support center approximately 30 to 60 days after the I-829 petition is filed so travel will need to be coordinated accordingly.  Biometrics processing reveals any arrests or convictions.  The ramifications of any arrests or convictions should be closely analyzed by the investor’s immigration counsel to determine whether an incident could trigger removal (deportation) proceedings.  If there are pending charges, USCIS will likely withhold approval of the I-829 petition until a final adjudication has been made in the criminal proceedings.

USCIS, also, in some cases has reviewed the travel records of an investor as part of the I-829 petition review, and probed the extensive absences outside of the United States to determine whether the investor has abandoned resident status.

There are essentially three requirements for adjudication of the I-829 petition for removal of conditions — investment of capital, sustained investment, and job creation.  These requirements will be addressed in turn.

Investment of Capital

Both the statute and regulations governing I-829 petitions require evidence that the EB-5 investor has “invested or was actively in the process of investing the requisite capital” in the NCE.  However, practically speaking, USCIS expects that all of the requisite capital has been invested in the NCE.  Documentation reflecting that the EB-5 investor has completed the investment typically includes similar evidence that was submitted in the underlying I-526 petition, i.e., the investor’s personal bank statement reflecting a withdrawal of funds directed to the NCE, and the NCE’s bank statement reflecting a corresponding deposit from the investor.  If an escrow was used to initially hold the investor’ EB-5 capital pending the fulfillment of certain conditions prior to release of funds to the NCE (e.g., approval of the I-526 petition), bank documentation should also be presented to reflect that each investor’s EB-5 capital was in fact released from the escrow account to the NCE’s account.

Given the need for biometrics in all cases, attention must be given to the possibility that USCIS could probe whether arrests or convictions relate to the investor’s source of funds.  USCIS may revisit an investor’s source of funds if the agency receives “derogatory information” following the approval of the I-526 petition.  A request for evidence (“RFE”) would question whether the investment capital was actually derived from unlawful sources.

Sustained Investment

The statute and regulations also require evidence that the investor has sustained the investment in the NCE.  This requirement focuses on the investor sustaining the investment as well as the sustaining of the business of the NCE.

The investor cannot withdraw any part of the minimum threshold EB-5 capital contribution from the NCE during the conditional resident period.  This prohibition does not disallow distributions representing profits.  With partnership accounting, the Form K-1 proves useful to indicate the EB-5 investor’s capital account has been sustained at the minimum level.  If the capital account has dropped below the required level due to non-cash expenses such as depreciation, an accountant’s letter helps to explain that the EB-5 investor has not withdrawn any part of the required capital.

The I-829 also should demonstrate that the NCE is an ongoing enterprise.  As a start, the I-829 should include documents verifying that the NCE continues to operate, e.g., income tax returns, financial statements, and/or recent bank statements.  Additional evidence would depend on the particular facts of the NCE.  As an example, if the NCE was formed for the purpose of developing and operating a hotel, the I-829 petition should include documents evidencing the expenditure of EB-5 capital towards the development of the hotel, and the status of the hotel’s construction and operations.   In another common example, if the purpose of the NCE was to raise EB-5 capital that in turn was loaned to a third party (“Borrower”), the I-829 petition should include documentation of the release of loan proceeds and of the Borrower’s expenditures.  Notably, USCIS has not provided guidance on how it views the Borrower’s prepayment of a loan to the NCE, or on whether in the circumstances the NCE should re-deploy the repaid proceeds during the EB-5 investor’s conditional residence.  This lack of guidance is especially troubling in view of the U.S. State Department’s dire predictions of visa retrogression for Chinese nationals, which among other consequences will stretch the overall timeframe for the NCE to manage the EB-5 process.

From approximately December 2009 to May 2013 (the dates of EB-5 adjudication guidance memos issued by USCIS), any “material change” from the initial Comprehensive Business Plan of the NCE would result in the denial of the I-829 petition and would require the EB-5 investor to start the process anew with the filing of a new I-526 petition.  Fortunately, USCIS adopted a more flexible view on business changes in its Policy Memorandum of May 30, 2013.    As for now, USCIS authorizes approval of an I-829 petition irrespective of a change from the initial Comprehensive Business Plan, so long as the material change occurs after the EB-5 investor has obtained conditional permanent residences, and the I-829 petition meets all other adjudication requirements including sufficient job creation.

Job Creation

USCIS interprets the EB-5 law to require proof in all I-829 adjudications that jobs have been created or will be created within a reasonable period of time.  This task of documentation may be complicated for NCEs with multiple EB-5 investors who “consume” ten EB-5 created jobs every time USCIS approves an I-829 petition.  Consequently, it is of paramount first importance that the regional center carefully track the conditional residence period and I-829 petition filing windows for all of its EB-5 investors.

Second, as part of its review and preparation for the I-829 petition, the regional center should review the job credit allocation agreement among the EB-5 investors in the NCE, set a timeline to monitor the number of jobs that must be created for each investor by a particular date, and develop a strategy that will support specific investors depending on where they are in line to receive job creation credit.

Third, in documenting job creation, the regional center will need to revisit the job impacts analysis that supported the I-526 petition approval, and prepare the evidence that shows the assumptions underlying the job impacts analysis have been realized.

It is imperative that the regional center obtain and organize these documents well in advance of the first I-829 filing deadline in order to avoid any delays for its EB-5 investors who require a prompt filing in order to obtain the notices that extend status and approve travel.  Also, advance planning is required to develop strategies for addressing any problem areas.

Examples of specific items of proof depend on the type of job creation.  Construction phase jobs are created as construction funding is expended, so the I-829 petition should include evidence of these capital expenditures.  Evidence can include a current construction budget detailing line item expenditures, sample invoices, construction draws, certification from the developer confirming capital expenditures, and documents showing the project has been completed or is near completion.

Proof of operations phase jobs will depend upon the inputs that were used in the economist’s analysis to estimate job creation.  For example, where revenues were relied upon, verification should include the job creating entity (“JCE”) income tax returns if possible and financial statements.  For tenant occupancy, evidence could include executed lease agreements, tenant affidavits regarding the type of business and number of employees at the leased space, and ongoing marketing efforts to attract tenants.  Where the number of on-site workers is the input to the economist’s analysis, payroll records and I-9 forms can verify the presence of on-site workers.

Following business realities, it is not uncommon that the assumptions underlying the job impacts analysis fail to transpire in accordance with the original timeline due to construction delays or lower leasing levels.  USCIS tracks the number of jobs it deems to have been created by a particular NCE and the number of I-829 petitions that have been approved for investors in that NCE.  It will issue RFEs to the EB-5 investors who are up for adjudication after the job creation capacity of the NCE has been filled.  Success in those I-829 cases will depend on documenting the amount of jobs already created and the additional jobs that will be created within reasonably identifiable timeframes, such as within a particular quarter.  Where, for example, the NCE funded the development of a hotel it is possible to qualify most of the EB-5 investors for removal of conditions based on the construction expenditures alone, without having to document the operations phase jobs.  On the other hand, EB-5 investors who are at the end of the line for job creation credit purposes may be entirely dependent on documentation of the performance of the hotel in terms of operating revenues.

Where jobs have not yet been created as of the date of the I-829 adjudication, the petitioner must argue that the jobs will occur by a certain date which amounts to “within a reasonable period of time.”  The Policy Memo sets the outer limit of this timeframe as three years following the initial conditional permanent residence date.  Because EB-5 investors in a particular NCE generally immigrate over a protracted period of at least 1 to 2 years, which could be further distended due visa retrogression, the three year deadline will differ from one investor to the next.  The strategy and supporting evidence, consequently, needs to be adjusted for different groups of investors depending upon the window for I-829 petition filing and the evidence of job creation that then is available.

Options if I-829 petition is denied

Unfortunately, there is no extreme hardship or good faith waiver for EB-5 investors who fail to meet the requirements for removal of conditions.  Also there is no administrative appeal available for a denied I-829 petition.  Routinely, USCIS now encloses with the I-829 denial a “Notice to Appear” thereby vesting jurisdiction with the immigration court.  The government bears the burden by a preponderance of the evidence to prove to the immigration judge that the I-829 petition should be denied.  The mere submission by the government of the USCIS denial of the I-829 petition is not sufficient in immigration court; the USCIS denial signals only that the petitioner did not meet the burden of proof before USCIS.  Although the law in this area is less than clear, the EB-5 investor should be able to present in immigration court evidence of subsequent events, such as additional job creation.  The immigration judge has the authority to remove the conditions on the investor’s residence, or alternatively to deny the I-829 petition again and order the deportation of the investor and family.

Conclusion

When a regional center assists the immigrant investor to reach the end zone with an approval of the I-829 petition, a family’s immigration dream of unconditional permanent residence is realized.  It shows that the regional center serves the primary motivation of its EB-5 investors.  The regional center notches another victory for its own organization, a feat that strikes a harmonious chord when promoting to prospective EB-5 investors.

*Elsie Hui Arias ([email protected]) is a partner of Stone Grzegorek & Gonzalez LLP, in Los Angeles, and is certified as a specialist in immigration and nationality law by the California State Bar.

RCBJ Retrospective articles are reprinted from IIUSA’s Regional Center Business Journal trade magazine. Opinions expressed within these articles do not necessarily represent the views of IIUSA and are provided for educational purposes.